Rising Trends in U.S. Casualty Insurance: Key Factors Driving Rates
The current dynamics in the U.S. casualty insurance market reveal a stark contrast to broader commercial property and casualty (P&C) insurance trends. A recent Morningstar DBRS report highlights that while many P&C lines experience reduced pricing due to competitive pressures, casualty insurance rates continue to rise. This divergence is linked to increasing litigation costs and the phenomenon known as social inflation.
Casualty insurance typically covers liability for third-party injuries or property damages and operates on a long-tail claims basis. This means claims might be reported and resolved over an extended period, presenting unique challenges for underwriters in the current legal climate. A key factor driving up casualty rates is the trend of nuclear verdicts—jury awards exceeding $10 million—leading to greater loss costs and uncertainty in future claims assessments.
According to the U.S. Chamber’s Institute for Legal Reform, the tort system costs reached $529 billion in 2022, accounting for 2.1% of GDP. With tort costs escalating at an average annual rate of 7.1% from 2016 to late 2024, they may surpass $900 billion by the end of the decade. This data underscores the financial pressures on insurers, emphasizing the critical role of effective risk management and pricing strategies in maintaining regulatory compliance and meeting payer and provider expectations.
State-Specific Legal Impacts
State-specific legal frameworks significantly influence casualty insurance pricing. For example, Texas led with over two million civil cases in 2024, followed by Florida, California, New York, and New Jersey. This regional litigation variability causes disparities in casualty insurance rates. Most of these civil cases settle in state jurisdictions, impacting local insurance carriers differently.
The evolution of legal practices, including increased third-party litigation funding, exacerbates these challenges. This practice involves external entities financing lawsuits in exchange for a settlement portion, potentially driving up the pursuit of high-value claims.
Despite these pressures, the U.S. casualty insurance market remains robust. Its expansive size, diverse product offerings, and adaptable pricing mechanisms support its resilience. Insurers actively refine underwriting practices, adjust deductibles, and manage geographical exposures, ensuring sustained market viability without jeopardizing credit ratings. This agility in adapting to legal and market developments continues to support the resilience of the casualty segment within the broader P&C insurance landscape.